New fast-track boost for businesses: instant payments could free up liquidity in the range of triple-digit billion DKK
A new initiative from the fintech company Tradeshift and EKF Denmark's Export Credit Agency will serve to expedite payment flows between Danish businesses, allowing more SMEs to boost their liquidity. This is set to make a big difference to many companies, explains Denmark's Minister for Industry, Business and Financial Affairs.
Dwindling revenue, but stable payroll, rent and supplier expenses. This is the harsh reality currently faced by a large number of Danish businesses. And unless those companies have well-lined coffers, the corona crisis could threaten their survival, since it will be even more difficult to stay afloat if they have to wait 90 days or more to receive payment for their deliveries.
The need for expedited B2B payments has spurred EKF Denmark's Export Credit Agency and the fintech company Tradeshift to set up an initiative that enables companies to settle their suppliers' invoices early. The Tradeshift trading platform can assist with the digital infrastructure to facilitate the instant-payment model. Meanwhile, businesses with export turnover are eligible for a line of credit with their bank, to be guaranteed by EKF, in order to keep them afloat if they opt for instant payment of supplier invoices. Next, Tradeshift's technology ensures a digital record trail for both the bank and EKF.
“The instant-payment scheme has the potential to be a powerful relief package for these exporters during the corona crisis. Not only does this hold sizeable financial potential in itself, it is also set to arrest the downward spiral caused by all businesses in a value chain delaying payments simultaneously. In addition, we recommend considering the option of rendering businesses cost-neutral for a limited period, to offset the interest rate costs of expediting remittances,” says co-founder of Tradeshift Mikkel Hippe Brun.
EKF's CEO Kirstine Damkjær explains that the export credit agency's role is to make its guarantees available to exporters who take up the scheme.
“We are keen to do our bit to incentivise instant payment, which is why we are making our solutions available to exporters who opt to expedite payments to their suppliers. This will allow them to pay supplier invoices early without compromising their own liquidity,” says Kirstine Damkjær.
The Minister of Industry, Business and Financial Affairs: a big difference to many businesses
The inspiration for the instant-payment scheme came from a number of large corporates announcing that they had expedited remittances to their suppliers during the crisis. In this way, large corporates are helping to ensure that smaller enterprises have the cash to make it through difficult times.
Tradeshift estimated the potential with sparring partner Philipp Schröder, Professor of Economics and CEO of the Firms and Industry Dynamics research centre at Aarhus University, and a member of the panel of experts currently advising the Danish Government on the next phase of reopening Denmark. Tradeshift's estimates indicate that the 250 largest corporates in Denmark could potentially unlock a triple-digit billion DKK amount in liquidity over the next twelve months by expediting remittances.
Minister for Industry, Business and Financial Affairs Simon Kollerup welcomes the initiative.
“This could make a big difference to many of those businesses that are currently struggling to stay afloat in the wake of the coronavirus crisis. I welcome EKF's move to assist the businesses who are keen to pay their suppliers, but have until now not been in a position to do so. This arrangement is an excellent example of how partnering between EKF and the fintech industry can bring about real solutions to unforeseen problems”.
The initiative was also keenly commended by CEO of The Danish Chamber of Commerce Brian Mikkelsen:
“Our member survey from mid-April shows that one in four of our members risks their cash drying up in the space of just two months. So, I am thrilled by this initiative. Increased access to liquidity could make all the difference to many Danish businesses under pressure”, Brian Mikkelsen enthused.
At Aarhus University, Phillip Schröder also sees great potential in the scheme.
“The liquidity potential of instant payment is undoubtedly high. This model is particularly promising because it is geared to B2B trade,” says Philipp Schröder, adding:
“It takes longer for B2B operators with complex value chains to get back into business. Once a component supplier finally succumbs, it takes longer – all things being equal – for a new component supplier to be in play than it would for a new restaurant, say, to pop up. In other words, the risk is that the macroeconomic loss from that one component supplier's insolvency will be fairly substantial.”